Tokyo Exchange merges with Osaka to form world’s No. 3 bourse

The Tokyo Stock Exchange became the world’s third-biggest bourse by listed companies today, adding 1,100 stocks from the Osaka Securities Exchange as the two merged their cash-equity trading platforms.

The TSE now has 3,423 companies after firms solely traded in Osaka moved their listings to Tokyo. TSE first-section stocks increased by 38 to 1,760, with the companies added set to join the Topix index that tracks the section in phases starting on Aug. 30.

The 47 percent increase in companies makes the TSE the world’s No. 3 bourse by listings, jumping from seventh before the merger. Only the Bombay Stock Exchange and Canadian markets operated by TMX Group Ltd. have more members, 5,230 and 3,971, respectively, according to World Federation of Exchanges data. The merger will save about $70 million a year in costs, the Japanese bourses said in November.

“The Tokyo Stock Exchange now has a larger global presence with more companies and higher liquidity,” said Kenichi Kubo, a senior fund manager at Tokio Marine Asset Management, which oversees the equivalent of $50 billion. “The merger will help Japan regain its position as Asia’s financial hub ahead of Hong Kong and Singapore.”

Stocks that were listed on the OSE though not on the TSE now trade only on the TSE. Those listed on both markets are now exclusive to the TSE. Securities trading on the TSE and the JASDAQ market had to choose one of the two. JASDAQ, previously a sub-market of the OSE, is now a sub-market of the TSE.

Nintendo Migrates

Nintendo Co., Murata Manufacturing Co. and Nidec Corp. are among companies previously listed in Tokyo and Osaka that switched their main market to Tokyo today. Shares of Yahoo Japan Corp., Japan Exchange Group and JIN Co., among those on both the TSE and JASDAQ, will trade solely on the TSE’s first section after choosing it over the exchange for start-ups.

The 38 new members of the TSE first section will be bought by index funds tracking the performance of the Topix. Wakita & Co., construction-equipment maker, Chinese-eatery operator Ohsho Food Service Corp. and Endo Lighting Corp., a decorative- lighting equipment maker, are among the companies that index funds are expected to buy in large amounts, according to estimates by Mizuho Securities.

In order to reduce the impact on trading and share prices, new members are scheduled to be gradually phased into the Topix, 50 percent of floating shares on Aug. 30 and 25 percent more on Oct. 31. Either 75 percent or 100 percent of members’ floating shares are used for the Topix calculation, depending on their trading value and market capitalization, according to the JPX.

Clearing Merger

The two bourses’ clearing operations were also integrated today, enabling some investors to trade futures and options with smaller margin deposits by combining two accounts. The derivative trading platforms will be merged from mid-March.

Japan Exchange Group ranked 17th in annual derivative trading volume in 2012, behind Asian rivals Korea Exchange and Shanghai Futures Exchange, according to the Japanese company’s medium-term management plan. Expanding services in derivatives is a main objective of the group, which seeks to launch products with commodities and foreign securities indexes as underlying entities.

“Derivative markets in Japan are very small compared with other those in other countries and cash-equities markets,” Atsushi Saito, chief executive officer at Japan Exchange Group Inc., said in March. The company’s target is to raise derivative trading volume to 400 million contracts in the year ending March 2016 from 270 million in the year ended March 2013.

Better Service

Providing better service is more important than integrating operations, according to Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc.

“It would not benefit investors to just have more companies listed on the single bourse if Japan Exchange Group does not improve its service,” said Sakurai, who helps oversee about $19 billion. “It is necessary to oblige listed companies to disclose information in English to attract more foreign investors.”